Trading Principles You Can Learn Online
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Professional traders require a varied skillset, most of which can be taught and developed over time. Per DataDrivenInvestor, some of the more essential skills considered to be necessary for success in financial markets concern an “understanding of risk,” a “willingness to be patient,” and “willingness to take a loss” (alongside knowledge of the markets, of course). And while these are all skills and disciplines you can develop within financial circles, you can also hone them through other practices and activities –– including, as some investors will tell you, playing poker.
Indeed, some investors will encourage poker as a side hobby, and Forbes has even written about evidence suggesting hedge fund managers who have succeeded in poker can earn an extra 1-5% per year on their investments. Given this connection, we want to look into the subject a little more closely, and examine how poker can help to train the aforementioned skills (as well as a few others relevant to trading).
Risk vs. Reward
We mentioned “understanding of risk” as an essential skill in investment, and it just so happens that one of the major disciplines to learn in poker is how to determine your actions when considering risk or reward. Capable poker players look at each situation with consideration of their cards, their bankroll, the cards on the table, and opponents’ strengths, tendencies, and positions. All of this boils down to a core assessment: the potential reward of a decision weighed against its risk. Every single hand in a poker game involves this thinking process, such that players become quite skilled at risk assessment.
We’ve discussed the ideas of weighing risk and reward within the trading industry previously, and to be sure it’s necessary to employ a methodical assessment strategy in any volatile financial trading market. A poker player getting into investment will understand how this works; they’ll be experienced at considering all of the elements that factor into probabilities and judging risk vs. reward accordingly.
Strategic Thinking
Patience is mentioned as a crucial skill as well, and it’s one that’s much easier to develop on the back of a sound strategy. For its part, poker is a volatile game in which scenarios evolve on a constant basis, with each new decision and each new card dealt. This means that in addition to developing their overarching strategies, players need to develop an ability to “think on their feet” and adjust approaches according to circumstances. If you’re betting confidently on your hole cards for instance, and the next community cards dealt reverse your fortunes, you can’t act hastily or stubbornly. Instead, you need to reassess your hand and adjust your strategy. The same is true if you’ve been pressing an advantage on a weak player who suddenly gains a huge stash of chips; you may need to change how you approach them in the game, because they’ll present a different threat.
Even beyond the fact that it demonstrates patience and control, this sort of on-the-fly thinking translates to trading. For instance, many regular traders use disciplines such as price-action trading strategies, wherein they make decisions based on price movements, as opposed to various analyses and indicators. It’s a means of boiling down data to price charts alone, setting aside some external information to focus on the bottom line and adjust practices accordingly. It’s only one example of countless trading strategies, but it speaks to how practiced strategic thinking in poker can make a trader more open to new approaches.
Managing Capital
Alongside consistent and strategic play,bankroll management in poker is pivotal to success, particularly for more competitive players. This is because of the fluctuating nature of the game; bad beats and bad luck are going to come up, and those who haven’t carefully managed their bankroll –– knowing how much capital they have to play with and what they’re putting toward each game –– run the risk that those bad beats become financially problematic.
In this case too, the poker strategy has fairly direct parallels in investment. In any trading venture, it’s crucial to understand how much capital you have on hand, what you can afford to lose, and what you’re putting into a trade. Otherwise, you run the risk of a poor investment or unforeseen market crash landing you in financial hardship. Poker players who begin investing will be armed with have an understanding of this financial strategy.
Control & Self-Discipline
As the infamous song goes, “You’ve gotta know when to hold’em, know when to fold’em.” Yes, it’s just a song, but in poker this speaks to the importance of control and self-discipline in managing a game. Poker players need toknow when it’s time to stay in a hand and compete, versus when it’s necessary to fold and walk away. The latter in particular can take great discipline –– if, say, you’ve already placed a few bets in a round, or you’re stubbornly hoping your pocket pair can hold up with a slew of face cards in the community pool. At the end of the day, hope and emotion have to be set aside in favor of discipline.
This fits into the necessity of developing discipline –– considered to be a key trait for traders, in that investment involves doing nothing when there are no opportunities present, and executing when those opportunities arise. Additionally, when already invested, traders need to know when to take a loss and stay invested for long-term potential, and when to cut losses and walk away.
Once again, there are all sorts of ways to learn about investment, and nothing beats practice and experience in the end. But other activities can also teach important principles and strategies, and the points above make clear that there are good reasons why many in finance talk up the benefits of a good poker game.
